Rutgers New Jersey Agricultural Experiment Station [Later Life Farming]

Module 9a: State and Local Regulations That Affect Farm Value

Regulations issued by the State of New Jersey could have an impact on your financial security in retirement. Specific examples include farmland assessment and state government laws and programs such as Pinelands, Highlands, and Farmland Preservation. These regulations can affect the value of your farmland or land that may be transferred to you.

Farmland Assessment

Farmland assessment by itself is not a major issue except for the fact that, if it were to lapse under the existing format for tax benefits, then the current land owner could be subject to additional tax payments through roll back or other penalties. Farmland assessment law provides landowners tax reductions by assessing their land's value for agricultural production rather than potential development value. Any change in land use or farm size may change the tax implications.

The New Jersey Farmland Assessment Act of 1964 permits farmland and woodlands actively devoted to an agricultural or horticultural use to be assessed at their agricultural or horticultural productivity value. The Act does not apply to buildings of any kind, nor to the land associated with the farmhouse; buildings and home sites on farms are assessed like all other non-farm property. When and if the land qualified under the Act changes to a non-agricultural or non-horticultural use, including being idle, it is subject to a rollback tax.

The basic eligibility requirements for farmland preservation benefits include:

  1. Applicant must own the land.
  2. Owner must annually apply for farmland assessment on Form FA-1 with the municipal tax assessor on or before August 1 of the year immediately preceding the tax year.
  3. Land must be devoted to agricultural and/or horticultural uses for at least two years prior to the tax year.
  4. Land must consist of at least 5 contiguous (adjoining) acres being farmed and/or under a woodlot management plan.
  5. Gross sales of products from the land must average at least $500 per year for the first 5 acres, plus an average of $5 per acre for each acre over 5, except in the case of woodland or wetland where the income requirement is $0.50 per acre for any acreage over 5; or there is clear evidence of anticipated yearly gross sales, payments, or fees within a reasonable period of time dependent on the agricultural or horticultural products being produced.

Regulations under Pinelands and, more recently, Highlands legislation could have income and estate tax implications in the event of a land transfer and/or inheritance. Both of these legislative acts can also impact the overall value of property (e.g., farmland) depending on the physical location within the designated boundaries of each act.
The potential for reduced land value exists in both acts by limiting the potential for development of the property and by increasing the acreage requirements for septic systems or development which has been determined to potentially impact water quality.

Highlands Legislation

Activities regulated under Highlands Act include:

  1. Any non-residential development in the preservation area.
  2. Any residential development in the preservation area that requires an environmental land use or water permit or that results in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more.
  3. Any activity undertaken or engaged in the preservation area that is not a development but results in the ultimate disturbance of one-quarter acre or more of forested area or that results in a cumulative increase in impervious surface by one-quarter acre or more on a lot.
  4. Any capital or other project of a State entity or local government unit in the preservation area that requires an environmental land use or water permit or that results in the ultimate disturbance of one acre or more of land or a cumulative increase in impervious surface by one-quarter acre or more. Major Highlands development shall not mean an agricultural or horticultural development or agricultural or horticultural use in the preservation area.

Pinelands Legislation

The Pinelands Act divides the Pinelands region into eight management areas or land use areas. These regulations can impact the value of your farm by limiting its development potential. Some areas which can directly impact farmland value are listed below.

  1. Preservation area: Development in the preservation area is mostly prohibited. One exception is families which have resided on the property for 20 years may build private dwellings provided the parcel is at least 3.2 acres.
  2. Agricultural production areas: Development in this area is restricted. Housing for farm owners and employees is permitted at a density of one home for every 10 acres. New, non-farm related housing is limited to one home for every 40 acres. Persons with family links to the Pinelands will also be allowed to build homes on lots of 3.2 acres in size.

Summary

Regulations under Farmland Preservation can restrict property value more so than the Pinelands and Highlands acts due to the fact that the development value has been sold off under the act, leaving the land owner with only the farmland value of the property. Included in this act are other restrictive concerns that new land owners need to be aware of before they take possession of the property. Since the land is preserved exclusively as farmland, it must be maintained and actively farmed.

Since many farmers use the value of their farms to fund retirement, careful consideration must be made when participating in the Farmland Preservation program. Some important considerations include capital gains taxes, the resale value of property, and financial management of funds secured through development easement sale. Unfortunately, cases have occurred where Farmland Preservation program payments were spent quickly, leaving farmers with neither the cash payment nor access to the development value of their land. Other farmers have sold their development rights and found that new farm-related activities could not be pursued on preserved farmland. Thus, they had to purchase more land to start new farm-related ventures. One example was a farmer who wanted to grow bio-fuels. He wanted to pelletize the fuel on preserved land, but this was not considered a "farming" activity. Thus he had to purchase more land which was not preserved to start this new farm related venture of pelletizing his home-grown fuel.

Online Resources

For additional information about New Jersey agricultural regulations that can affect retirement planning decisions, visit the following websites:

Useful Links

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